Treasury Secretary Henry Paulson said that additional measures announced by the Federal Reserve and Treasury Tuesday morning are aimed at aiding the U.S. housing market and restoring affordable bank lending to consumers and small businesses.
It was announced earlier that the Treasury will provide $20 billion from its Troubled Asset Relief Program (TARP) for credit protection to the Federal Reserve as part of its $200 billion Term Asset Backed Securities Loan Facility (TALF), to address this need and support the return of consumer lending.
"By providing liquidity to issuers of consumer asset backed paper, the Federal Reserve facility will enable a broad range of institutions to step up their lending, enabling borrowers to have access to lower cost consumer finance and small business loans," Paulson said.
"The facility may be expanded over time and eligible asset classes may be expanded later to include other assets, such as commercial mortgage-backed securities, non-agency residential mortgage-backed securities or other asset classes.
Next week, the Federal Reserve will commence buying $100 billion of GSE debt through a series of reverse auctions. The remaining $500 billion will be used to buy mortgage-backed securities on homes that carry GSE guarantees.
Paulson added it will take time to work through the difficulties in the markets and the economy as "new challenges continue to arise."
In a question and answer session, Paulson said there is no timeline for a further drawdown of the TARP funds or when he will return to Congress to seek the remaining $350 billion from the TARP.
He was also asked if taking over Government Sponsored Enterprises Fannie and Freddie and putting them into conservatorship had worked out as planned. Paulson said, "the conservatorship has worked out as we hoped. This is just a very strong statement of support, and a very strong statement of support for the housing market."
Paulson also said "we are dealing with a historic situation," but noted that the TARP and authorities granted under it mean "we are in a much different situation."
Asked if he has been working in consultation with incoming Treasury Secretary Timothy Geithner on the new programs, Paulson said that Geithner understands everything that has been put in place and has "participated actively in putting it in place" in his role as current president of the New York Fed.
By Stephen Huebl and edited by Sarah Sussman
©CEP News Ltd. 2008